Many people underestimate the true value of their estate. When they learn that the estate tax threshold in 2018 stands at $11.8 million per estate, they may believe that they stand no chance of owing estate taxes at the end of their lifetime.
However, it is important that estate planners recognize their estate value might be worth more than they think. This is in part due to the value of assets such as life insurance policies.
What impact do life insurance policies have on estate tax?
If a person has property worth $7 million at the time of their death and a life insurance policy of $5 million, their gross estate will be valued at above the estate tax threshold. This is why it is important to find ways to minimize the likelihood of owing tax on your estate.
How can trusts help?
If you have a life insurance policy, you may want to consider putting it into an Irrevocable Life Insurance Trust (ILIT). By doing this, your loved ones will still be able to benefit from the life insurance policy, but it will no longer be counted as part of your gross estate.
What happens if I change my mind?
An irrevocable trust cannot be undone. However, since you need to keep paying premiums to maintain the life insurance policy, by refraining to pay the premiums, you can cancel the policy completely.
If you have questions or concerns about reducing your estate taxes in the state of Arizona, an experienced estate planning attorney can provide the information you need.